For an outlay of about €1.4 billion, IAG will acquire almost €1 billion in cash according to the last balance sheet. Given Aer Lingus’ strong trading performance, that cash position has undoubtedly improved substantially since then. IAG will also acquire 23 Heathrow slots worth in excess of €600 million at current market values. That is before the value of the fleet and other assets is included. It is the heist of the decade, if not the century.
To sell it for a return to Irish taxpayers of a paltry €350 million is an abomination. It demonstrates this Government’s propensity to screw up on big financial issues, eg, Irish Water.
The share price offered by IAG is 14% higher than the flotation price of 2006, €2.20; but 25% less than the takeover price (up to €3.30) offered by Ryanair at that time. Those prices reflected a much weaker balance sheet at the time and demonstrate the Government’s abysmal judgement in this matter. This Government now expects shareholders to sell their shares at a substantial discount to the 2006 Ryanair price. Try that one at a cattle mart anywhere in Ireland.
It will surprise most people that the value of Aer Lingus’ slots at Heathrow is not included in its balance sheet. This was confirmed to me and other shareholders by the chairman at the Annual General Meeting four weeks ago. The reason the slot values are not included is, to quote him “as we did not pay for them, they are not recorded” (these slots were part of a “Grandfather Rights” arrangement for many airlines in the late 1980s on condition that “you use them or lose them”). In contrast, a paltry few million euro for slots at Gatwick are included in the accounts.
So if anybody has inherited a large farm or house worth a million or more, then by the accounting standards of Price Waterhouse Cooper and the Aer Lingus chairman, you are not a millionaire until you sell.
As the then Minister for Finance and Taoiseach did not spot the Anglo fireball in 2007 or earlier, they are clearly unaware of this issue now. The last slot sale occurred in August 2014 for almost €30 million. Slot values at Heathrow are now being driven by the über large Airbus A380 aircraft. Such an aircraft would repay the outlay on a slot in about two years which, by any standard, is an excellent investment. BA is getting over €600 million worth of slots for free.
Many financial soothsayers claim that Aer Lingus cannot survive and grow in an intensely competitive international marketplace. This line has been trotted out by Ministers Noonan and Donohue in support of a sale. I have been listening to this rubbish for over 30 years. It is pure bunkum. If such was the case, Aer Lingus would have gone to the wall years ago.
And if that were the case then companies like Apple, Ryanair, Singapore Airlines, CRH and many other very successful internationally traded companies would not exist. Any organisation that can repeatedly adapt itself to the changing demands of evolving markets will survive and prosper, irrespective of size. Aer Lingus is such a company.
If a cataclysmic economic upheaval did arise, Aer Lingus, along with Ryanair, can relax in the knowledge that they will be the last industry survivors. IAG would be long gone before either of them. Their balance sheets tell us that, all information is in the public domain.
For Aer Lingus to expand profitably, it can either borrow on the capital markets or launch a rights issue on the stock markets. I have absolutely no doubt that the strength of the balance sheet and its cash generation capabilities would be a major attraction to investors and that funds to acquire additional aircraft to tap new markets would be readily forthcoming. Otherwise aircraft leasing opportunities are widely available.
However, I have reluctantly concluded that Aer Lingus are too jaded to stretch themselves in this regard. Promises have been made by IAG that Ireland’s strategic interests would be protected.
This is utter nonsense.
The only strategic interest that will be protected is that of IAG itself. That is the duty of its board. If IAG wants to start developing alternative routes away from Heathrow, then Manchester, Birmingham and Glasgow are more appropriate starting points. Should the IAG bid succeed, then customers can look forward to the “Heathrow (or Gatwick) stop” as IAG starts consolidating routes. Ask any Iberia customer that wants to fly to the Far East from Madrid. The next economic downturn will ensure this happens.
The Government has seriously misjudged this bid. If they want to capitalise on Aer Lingus’ financial value, then they should not countenance a sale until the company’s market capitalisation is at least €4billion. Anything less is selling it for a mess of potage.